#146 - Startup School Week 5 Recap - Kirsty Nathoo and Kevin Hale

**Craig Cannon** (0:00)
Hey, how's it going? This is Craig Cannon, and you're listening to Y Combinator's podcast. Today's episode is a recap of the fifth week of Startup School. I've cut down the fifth week of lectures to be even shorter and combined them into one podcast. First, we'll have a lecture from Kirsty Nathoo. Kirsty is a partner in the CFO of YC. Her lecture focuses on the most common mistakes startups make with their finances and how they can avoid baking them.
Then we'll have a lecture from Kevin Hale. Kevin is also a partner of YC, and he'll talk about the importance of building a successful working relationship with your co-founders and processes you can use to do so.
All right, here we go.

**Kirsty Nathoo** (0:37)
Morning, everybody. Thank you for coming in at nine o'clock. It's an early start. So as Kevin mentioned, my name is Kirsty Nathoo, and I'm the CFO here at Y Combinator. So I've actually helped now 2,000 companies almost as they've come through Y Combinator.
So seen a lot of successes and seen a lot of failures. So I'm going to help you just understand some of the big mistakes that we see some of these companies doing based on their cash and based on their money. And so for every business, whether it's a startup or a mom and pop shop, cash is its lifeblood. And if you run out of cash, then the business dies. There's really no going back at that point. And it's actually surprisingly easy to run out of cash. And we see many startups not realize that they have done that until it's too late to actually be able to turn it round and do something about it.
So we're gonna talk about these three early stage pitfalls. So this is probably most relevant to you right now. And then we'll talk through another three that as you start to raise money and are starting to think about hiring, some other mistakes that companies make. So we're going to look at what the numbers, you should be looking at, how often you should be looking at them, whether your expenses are realistic, and then thinking a little bit more about hiring and looking at responsibilities. All right, so let's move on to the first one. So the first mistake is really not knowing what numbers to look at, to make sure that the health of your company is good. And really, there are three things that you should know. Your bank balance, the money coming in, and the money going out. And these are not difficult. You don't need anything fancy to be able to do this. This is all information you can get from your online banking or your bank statements. You don't need bookkeepers, you don't need financial software. This is super straightforward, but you would be amazed at how many companies don't look at this.
And then using these three numbers, you can then calculate some other things. You can look at burn, you can look at your runway, you can look at growth rate, and you can figure out whether the company is default alive.
Okay, let's go through these in order. Your burn is purely money in minus money out. Again, you can get this from your bank statements. It's effectively just the change in bank balance between two dates.
Here's an example. Super easy. You have 25K expenses, you have 10K of revenue, so your burn is 15K. If your expenses are a little bit lumpy, some companies, you might have a one-off month where you paid a legal bill or something that's super high. You can do this. You can look at average expenses as well to figure out your burn. And that's often referred to as average burn. So you might look at this over three months to get more of an idea.
So then once you know your burn, then you can start to look at what your runway is. And what this means is, how long do you have until you run out of money? And the way that you calculate that is you look at your existing bank balance, divide it by your average burn, and that gives you a number of months. So here, we have 150K in the bank.
We've just calculated our burn rate to be 15K. And so we have 10 months of runway. Again, super straightforward, but you'd be amazed at how many companies or how many founders don't know these numbers for their company.
And just a point here that, again, the burn might change over time, but this is a number for you. This is not a number to try to make things look good. This is for you to not lie to yourself. So looking at the burn and going, well, this month it was 15K, but let's just pretend it was 10K, so then that makes it look like that we have 15 months of runway left. All you're doing is lying to yourself. You're still going to run out of money on the same day. It's just making you feel better right now. So it's super important to really be honest with yourself on these.